European Commissioner Phil Hogan was back in Ireland last week with a clear message for Europe’s dairy farmers to be careful not to oversupply the market with milk in 2018.

With the Republic of Ireland driving on with producing more milk, up another 7% this year, and set to reach its 2020 target of 7.5bn litres of milk two years ahead of schedule, his message was one few probably wanted to hear in Punchestown last week.

However, in a keynote address at the Irish Farmers Journal Dairy Day, he was clear that Europe’s dairy industry must do more to manage the market, so as to avoid another price crash.

Milk supply and demand are finely balanced, and the price increases seen in 2017 are on the back of reduced supply of milk, not a significant strengthening of demand. So as supply is now starting to pick up in major milk producing regions (including the EU), the warning signs are there.

“As I have been saying consistently over the past two years – rather than rely on the Commission to act, the industry needs to manage the problem of overproduction,” said Hogan.

He cited the example of Friesland Campina, which has told its producers in the Netherlands, Belgium and Germany that it will put in place temporary measures in the first half of 2018 if supply moves ahead of processing capacity. Effectively, that could mean that those who produce above a reference volume will see their price cut, and vice versa.

He was also adamant that there was “no guarantee” that he would be able to intervene in the market, like he was able to do in previous years. During that period various measures were introduced, worth €1bn, and were mainly aimed at helping dairy farmers survive the downturn. In NI, a flat payment of 0.23p/l was paid out in 2015, a milk production reduction scheme introduced in 2016 and a small dairy farmers’ payment (to a maximum of £1,000) made in 2017.

Critically, the Commission also took nearly 400,000t of skim milk powder off the market by way of intervention buying.

However, the plan is that when intervention opens again from 1 March 2018, it will operate by a tender procedure. So rather than a flat intervention price of €1,698/t, product could be bought at prices well below this level.

Aside from that is the approximate 350,000t of skim currently in intervention stores, and acting as an overhang in the market.

“I have to be very blunt, the product has to be sold. At a time when the next EU budget is being negotiated, I cannot have half a million tonnes of skim in intervention stores,” he said.

However, he maintained that it would be sold at the right price, at the right time and managed in such a way so as to protect farmer incomes. Last week, member states agreed to sell 40t of skim out of public intervention at a price of €1,390/t, which was about €70/t below Dutch auction prices.

Reduction scheme

Looking ahead, while funds might be tight, and the pressure is on to reduce intervention stocks, the Commissioner did confirm that he will still have various tools at his disposal to intervene in the market. That includes a voluntary milk production reduction scheme, something which Hogan believes played a crucial part in driving market recovery in 2016/2017.

“The legal basis will continue. I can’t put myself in a position where I have no tools to intervene, but the industry must do more to manage it,” said the Commissioner, responding to a question from Lurgan dairy farmer Gary McHenry.

Environmental challenge isn’t going away

With a new CAP to be increasingly focused on environmental and climate change targets, Commissioner Hogan also emphasised the importance for all sectors, including dairy, of ensuring that it stays on a sustainable footing: “The environmental challenge is not going away, and all agri-food sectors need to rise to the challenge. Let us not forget the risks of failing to do so. The Dutch dairy industry has been dealing with a phosphate problem for the past 12 months, which resulted in the slaughter of 50,000 cows.”

With the Netherlands currently negotiating its derogation (allowing 250kg of manure N to be spread on land, rather than 170kg) under the Nitrates Directive, Commisioner Hogan maintained that controls still need to be tightened, which will place enormous pressure on the Dutch government.

Food chain

Commissioner Hogan also referred to the current imbalance of power in the food supply chain, with five major supermarkets controlling 90% of the grocery market in Ireland.

The Commission is currently working on a proposal to address the issue.